The Prosperous Pound

High inflation over the last year has collectively cost savers billions of pounds in real terms, according to an Independent report. Have you considered the effect the rising cost of living could have on your wealth?

While inflation may not reduce how much you have in your savings account, in real terms, the value may fall.

As the cost of goods and services rises, what you could purchase with your savings falls. Usually, this happens at a gradual pace. However, as inflation has been higher than the Bank of England’s (BoE) 2% target for two years, the effect has been more noticeable.

If the interest rate your savings earn doesn’t keep pace with inflation, the value of your money decreases.

Inflation could reduce the value of your savings in real terms, but cash may still be useful

The BoE calculations suggest £10,000 in 2021 would have to have grown to £11,774 in August 2023 just to have the same spending power.

Figures suggest more families are gifting to avoid Inheritance Tax (IHT). While passing on assets to loved ones may seem like a clear solution, it isn’t always so simple.

More estates are becoming liable for IHT as thresholds for paying the tax are frozen. The Office for Budget Responsibility predicts HMRC will collect £8.4 billion from IHT receipts in 2027/28, compared to £7 billion in 2022/23.

The portion of your estate that exceeds IHT thresholds could be taxed at a standard rate of 40%. So, it’s not surprising that families are looking for ways to mitigate a potential bill.

According to a Telegraph report, the number of people who have gifted assets that would become exempt from IHT if they survived a further seven years increased by 48% between 2009/10 and 2019/20.

If the value of your estate exceeds the nil-rate band, which is £325,000 in 2023/24, your estate may be liable for IHT.

The “great resignation” is set to continue. If you’re searching for a new job, the salary is probably crucial when deciding if an offer is right for you. Yet, there are non-salary work benefits that could boost your wealth that you may be overlooking when you weigh up an opportunity.

The Global Workforce Hopes and Fears Survey from PwC found that the cost of living crisis is pushing more workers to search for a pay rise. In fact, in the UK, 23% of employees say it’s likely they’ll change jobs in the next 12 months.

Globally, the study found workers who are struggling to pay their bills are among the most likely to seek a new job, second only to those who feel overworked.

So, for many workers, the salary on offer at a new job could influence their decision. If improving your long-term financial wellbeing is your goal, there could be other factors that are just as important.

Climate change is a huge global issue. Yet, research indicates that pension funds are investing billions of pounds in businesses that are contributing to the challenge. Does your pension invest in fossil fuel companies?

The Make My Money Matter campaign claims UK pension funds are investing £88 billion in fossil fuel companies. On average, this works out to around £3,000 for each pension holder.

The campaign, which encourages UK pensions and banks to stop “destructive, harmful investments”, states the actions of fossil fuel companies that pensions are investing in aren’t aligned with climate change goals.

Among the pension funds analysed, 70% said fossil fuel giant Shell was among their largest holdings, and 60% said the same about BP. Conversely, there were no renewable energy stocks listed among the top holdings of any of the pension funds assessed.

It can be difficult not to let your emotions influence the decisions you make. When investing, emotional decision-making could be harming your portfolio’s performance and your ability to reach your goals.

While you try to make investment decisions based on logic and facts, it can be easy for emotions, from fear to excitement, to play a role at times. And a survey of financial advisers reveals it could be costing you more than you think.

According to a report in FTAdviser, financial advisers believe emotional decision-making costs investors at least 2% each year in foregone returns. They believe two of the biggest mistakes investors make are:

• Being too influenced by the news (47%)
• Taking too little risk (44%).

If you’ve been guilty of these mistakes in the past, you’re certainly not alone. The good news is that there are things you can do to reduce the effect emotions have on your investments.